NAFTA at 20: Overview and Trade Effects
M. Angeles Villarreal
Specialist in International Trade and Finance
Ian F. Fergusson
Specialist in International Trade and Finance
April 28, 2014
Congressional Research Service
7-5700
www.crs.gov
R42965
NAFTA at 20: Overview and Trade Effects
Summary
The North American Free Trade Agreement (NAFTA) entered into force on January 1, 1994. The
agreement was signed by President George H.W. Bush on December 17, 1992, and approved by
Congress on November 20, 1993. The NAFTA Implementation Act was signed into law by
President William J. Clinton on December 8, 1993 (P.L. 103-182). The overall economic impact
of NAFTA is difficult to measure since trade and investment trends are influenced by numerous
other economic variables, such as economic growth, inflation, and currency fluctuations. The
agreement may have accelerated the trade liberalization that was already taking place, but many
of these changes may have taken place with or without an agreement. Nevertheless, NAFTA is
significant because it was the most comprehensive free trade agreement (FTA) negotiated at the
time and contained several groundbreaking provisions. A legacy of the agreement is that it has
served as a template or model for the new generation of FTAs that the United States later
negotiated and it also served as a template for certain provisions in multilateral trade negotiations
as part of the Uruguay Round.
The 113th Congress faces numerous issues related to international trade. Canada and Mexico are
the first and third largest U.S. trading partners, respectively. With the two countries participating
in the negotiations to conclude a Trans-Pacific Partnership (TPP) free trade agreement among the
United States and 11 other countries, policy issues related to NAFTA continue to be of interest for
Congress. If an agreement is concluded, it could affect the rules and market access commitments
governing North American trade and investment since NAFTA entered into force. A related trade
policy issue in which the effects of NAFTA may be explored is the possible renewal of Trade
Promotion Authority (TPA; formerly known as “fast-track authority”) to provide expedited
procedures for the consideration of bills to implement trade agreements.
NAFTA was controversial when first proposed, mostly because it was the first FTA involving two
wealthy, developed countries and a developing country. The political debate surrounding the
agreement was divisive with proponents arguing that the agreement would help generate
thousands of jobs and reduce income disparity in the region, while opponents warned that the
agreement would cause huge job losses in the United States as companies moved production to
Mexico to lower costs. In reality, NAFTA did not cause the huge job losses feared by the critics or
the large economic gains predicted by supporters. The net overall effect of NAFTA on the U.S.
economy appears to have been relatively modest, primarily because trade with Canada and
Mexico account for a small percentage of U.S. GDP. However, there were worker and firm
adjustment costs as the three countries adjusted to more open trade and investment among their
economies.
The rising number of bilateral and regional trade agreements throughout the world and the rising
presence of China in Latin America could have implications for U.S. trade policy with its NAFTA
partners. Some proponents of open and rules-based trade maintain that a further deepening of
economic relations with Canada and Mexico will help promote a common trade agenda with
shared values and generate economic growth. Some opponents argue that the agreement has
caused worker displacement and that NAFTA needs to be reopened. One possible way of doing
this is through the proposed TPP. The ongoing TPP negotiations, launched in the fall of 2008,
may not result in a reopening of NAFTA, but could alter some of the rules and market access
commitments governing North American trade and investment.
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Contents
Introduction ...................................................................................................................................... 1
Market Opening Prior to NAFTA .................................................................................................... 2
The U.S.-Canada Free Trade Agreement of 1989...................................................................... 2
Mexico’s Pre-NAFTA Trade Liberalization Efforts .................................................................. 3
Overview of NAFTA Provisions ...................................................................................................... 5
Removal of Trade Barriers ........................................................................................................ 5
Services Trade Liberalization .................................................................................................... 7
Other Provisions ........................................................................................................................ 7
NAFTA Side Agreements on Labor and the Environment ........................................................ 8
Trade Trends and Economic Effects ................................................................................................ 9
U.S. Trade Trends with NAFTA Partners ................................................................................ 10
Overall Trade ..................................................................................................................... 10
Energy Trade Implications ................................................................................................ 11
Trade with Canada ............................................................................................................. 13
Trade with Mexico ............................................................................................................ 14
NAFTA’s Effect on the U.S. Economy .................................................................................... 14
U.S. Industries and Supply Chains .................................................................................... 15
U.S.-Mexico Trade Market Shares .................................................................................... 18
U.S. and Mexican Foreign Direct Investment ................................................................... 18
Income Disparity ............................................................................................................... 19
Effect on Canada ..................................................................................................................... 20
U.S.-Canada Trade Market Shares .................................................................................... 20
U.S. and Canadian Foreign Direct Investment .................................................................. 22
Issues for Congress ........................................................................................................................ 22
Trans-Pacific Partnership (TPP) .............................................................................................. 23
Regulatory Cooperation ........................................................................................................... 24
Proposals for Deeper Regional Integration ............................................................................. 25
Figures
Figure 1. U.S. Merchandise Trade with NAFTA Partners: 1993-2013 .......................................... 11
Figure 2. Non-Petroleum Trade with NAFTA Partners: 1993-2013 .............................................. 12
Figure 3. Top Five Import Items from NAFTA Partners ............................................................... 13
Figure 4. Market Share as Percentage of Total Trade: Mexico and the United States ................... 18
Figure 5. Market Share as Percentage of Total Trade: Canada and the United States ................... 21
Tables
Table 1. U.S. Trade in Vehicles and Auto Parts: 1993 and 2013.................................................... 16
Table A-1. U.S. Merchandise Trade with NAFTA Partners ........................................................... 27
Table A-2. U.S. Private Services Trade with NAFTA Partners ...................................................... 28
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Table A-3. U.S. Trade with NAFTA Partners by Major Product Category: 2013 .......................... 29
Table A-4. U.S. Foreign Direct Investment Positions with Canada and Mexico ........................... 30
Appendixes
Appendix A. U.S. Merchandise Trade with NAFTA Partners ....................................................... 27
Appendix B. Mexico’s Protectionist Trade Policies Prior to NAFTA ........................................... 31
Contacts
Author Contact Information........................................................................................................... 32
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NAFTA at 20: Overview and Trade Effects
Introduction
The North American Free Trade Agreement (NAFTA) has been in effect since January 1, 1994.
Signed by President George H.W. Bush on December 17, 1992, and approved by Congress on
November 20, 1993, the NAFTA Implementation Act was signed into law by President William J.
Clinton on December 8, 1993 (P.L. 103-182). NAFTA continues to be of interest to Congress
because of the importance of Canada and Mexico as U.S. trading partners, and also because of the
implications NAFTA has for U.S. trade policy. This report provides an overview of North
American trade liberalization before NAFTA, an overview of NAFTA provisions, the economic
effects of NAFTA, and policy considerations.
The 113th Congress, in both its legislative and oversight capacities, faces numerous issues related
to international trade. The Obama Administration has made the proposed Trans-Pacific
Partnership (TPP) free trade agreement one of its top trade priorities.1 The United States, Canada,
and Mexico, along with nine other countries, are participating in the TPP negotiations. If
negotiations continue to move forward, it may affect the rules and market access commitments
governing North American trade since NAFTA entered into force. A related trade policy issue in
which the effects of NAFTA may be explored is the possible renewal of Trade Promotion
Authority (TPA; formerly known as “fast-track authority”) to provide expedited procedures for
the consideration of bills to implement trade agreements.2
Many trade policy experts give credit to free trade agreements (FTAs) for enhancing economic
linkages between countries, creating more efficient production processes, increasing the
availability of lower-priced consumer goods, and improving living standards and working
conditions.3 Others have blamed FTAs for disappointing employment trends and for not having
done enough to improve competitiveness, labor standards, and environmental conditions abroad.4
A legacy of NAFTA is that it has served as a model for other FTAs that the United States later
negotiated and also for multilateral negotiations. NAFTA initiated a new generation of trade
agreements in the Western Hemisphere and other parts of the world, influencing negotiations in
areas such as market access, rules of origin, intellectual property rights, foreign investment,
dispute resolution, worker rights, and environmental protection. The United States currently has
FTAs with 20 countries. As with NAFTA, these trade agreements have often been supported or
criticized on similar arguments related to jobs.
1 See CRS Report R42694, The Trans-Pacific Partnership (TPP) Negotiations and Issues for Congress, coordinated by
Ian F. Fergusson.
2 Trade Promotion Authority, formerly called “fast-track authority” is the authority Congress grants to the President to
enter into certain reciprocal trade agreements, and to have their implementing bills considered under expedited
legislative procedures, provided the President observes certain statutory obligations. For more information, see CRS
Report RL33743, Trade Promotion Authority (TPA) and the Role of Congress in Trade Policy, by William H. Cooper.
3 Gary Clyde Hufbauer and Jeffrey J. Schott, NAFTA Revisited: Achievements and Challenges, Institute for
International Economics, October 2005, Chapter 1.
4 Pardee Center Task Force Report, The Future of North American Trade Policy: Lessons from NAFTA, Boston
University, November 2009.
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Market Opening Prior to NAFTA
The concept of economic integration in North America was not a new one at the time NAFTA
negotiations started. In 1911, President William Howard Taft signed a reciprocal trade agreement
with Canadian Prime Minister Sir Wilfred Laurier. After a bitter election, Canadians rejected free
trade and ousted Prime Minister Laurier, thereby ending the agreement. In 1965, the United States
and Canada signed the U.S.-Canada Automotive Products Agreement that liberalized trade in
cars, trucks, tires, and automotive parts between the two countries.5 The Auto Pact was credited as
a pioneer in creating an integrated North American automotive sector. In the case of Mexico, the
government had been implementing reform measures since the mid-1980s, prior to NAFTA, to
liberalize its economy. By 1990, when NAFTA negotiations began, Mexico had already taken
significant steps towards liberalizing its protectionist trade regime.
The U.S.-Canada Free Trade Agreement of 1989
The United States and Canada recently marked the 25th anniversary of the October 3, 1987
signing of the U.S.-Canada Free Trade Agreement (FTA). The FTA was the first economically
significant bilateral FTA signed by the United States.6 Implementing legislation7 was approved by
both Houses of Congress under “fast-track authority”—now known as trade promotion authority
(TPA)—and signed by President Ronald Reagan on September 28, 1988. While the FTA
generated significant policy debate in the United States, it was a watershed moment for Canada.
Controversy surrounding the proposed FTA led to the so-called “free trade election” in 1988, in
which sitting Progressive Conservative Prime Minister Brian Mulroney, who negotiated the
agreement, defeated Liberal party leader John Turner, who vowed to reject it if elected. After the
election, the FTA was passed by Parliament in December 1988, and it came into effect between
the two nations on January 1, 1989. At the time, it probably was the most comprehensive bilateral
FTA negotiated worldwide and contained several groundbreaking provisions. It:
• Eliminated all tariffs by 1998. Many were eliminated immediately, and the
remaining tariffs were phased-out in 5-10 years.
• Continued the 1965 U.S.-Canada Auto Pact, but tightened its rules of origin.
Some Canadian auto sector practices not covered by the Auto Pact were ended by
1998.
• Provided national treatment for covered services providers and liberalized
financial services trade. Facilitated cross-border travel for business professionals.
• Committed to provide prospective national treatment for investments originating
in the other, although established derogations from national treatment such as for
national security or prudential reasons were allowed to continue. Banned
imposition of performance requirements, such as local content, import
substitution, or local sourcing requirements.
5 The Canada-United States Automotive Products Agreement removed tariffs on cars, trucks, buses, tires, and
automotive parts between the two countries. NAFTA effectively superseded this agreement.
6 Prior to the U.S.-Canada FTA, the only bilateral U.S. FTA was with Israel.
7 United States-Canada Free-Trade Agreement Implementation Act of 1988 (P.L. 100-449).
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• Expanded the size of federal government procurement markets available for
competitive bidding from suppliers of the other country. It did not include sub-
federal government procurement.
• Provided for a binding binational panel to resolve disputes arising from the
agreement (a Canadian insistence).
• Prohibited most import and export restrictions on energy products, including
minimum export prices. This was carried forth in NAFTA only with regard to
Canada-U.S. energy trade.
Many of these provisions were incorporated into, or expanded in, NAFTA. However, the FTA did
not include, or specifically exempted, some issues that would appear in NAFTA for the first time.
These include
• Intellectual property rights (IPR). The FTA did not contain language on
intellectual property rights. NAFTA was the first FTA to include meaningful
disciplines on IPR.
• Cultural exemption. It exempted the broadcasting, film, and publishing sectors.
This exemption continues in NAFTA.
• Transportation services and investment in the Canadian energy sector were
excluded from the FTA. These exclusions were limited in NAFTA.
• Trade remedies. Neither the FTA nor NAFTA ended the use of trade remedy
actions (anti-dumping, countervailing duty, or safeguards) against the other. This
was a key Canadian goal of the FTA. NAFTA did create a separate dispute
settlement mechanism to adjudicate trade remedy disputes, but this mechanism
has not been replicated in other FTAs.
• Softwood lumber. The FTA grandfathered in the then-present 1986
Memorandum of Understanding (MOU) governing softwood lumber trade. Over
time, the MOU has been replaced by other agreements—such as the current
Softwood Lumber Agreement (SLA)—and, at times, by resort to trade remedy
actions.
• Agricultural supply management. Canada was able to exempt its agriculture
supply management system, although it committed to allow a small increase in
imports of dairy, poultry, and eggs, which carried over into the NAFTA. The
United States was also able to exclude certain products from liberalization
commitments under the FTA and the NAFTA.
Mexico’s Pre-NAFTA Trade Liberalization Efforts
Well before NAFTA negotiations began, Mexico was already liberalizing its protectionist trade
and investment policies that had been in place for decades (see Appendix B for more information
on Mexico’s pre-NAFTA protectionist policies). The restrictive trade regime began after Mexico’s
revolutionary period and remained until the early- to mid-1980’s when the country was facing a
debt crisis. It was at this time that the government took unilateral steps to open and modernize its
economy by relaxing investment policies and liberalizing trade barriers. The trade liberalization
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measures that began in the mid-1980s shifted Mexico from one of the world’s most protected
economies into one of the most open. Mexico now has 12 FTAs involving 44 countries.8
Mexico’s first steps in opening its closed economy focused on reforming its import substitution
policies in the mid-1980s. Further reforms were made in 1986 when Mexico became a member of
the General Agreement on Tariffs and Trade (GATT). As a condition of becoming a GATT
member, for example, Mexico agreed to lower its maximum tariff rates to 50%. Mexico went
further by reducing its highest tariff rate from 100% to 20%. Mexico’s trade-weighted average
tariff fell from 25% in 1985 to about 19% in 1989.9
Although Mexico had been lowering trade and investment restrictions since 1986, the number of
remaining barriers for U.S. exports remained high at the time of the NAFTA negotiations. Mexico
required import licenses on 230 products from the United States, affecting about 7% of the value
of U.S. exports to Mexico. Prior to its entry into GATT, Mexico required import licenses on all
imports. At the time of the NAFTA negotiations, about 60% of U.S. agricultural exports to
Mexico required import licenses. Mexico also had numerous other nontariff barriers, such as
“official import prices,” an arbitrary customs valuation system that raised duty assessments.10
For Mexico, an FTA with the United States represented a way to lock in the reforms of its market
opening measures from the mid-1980s to transform Mexico’s formerly statist economy after the
devastating debt crisis of the 1980s.11 The combination of the severe economic impact of the debt
crisis, low domestic savings, and an increasingly overvalued peso, put pressure on the Mexican
government to adopt market-opening economic reforms and boost imports of goods and capital to
encourage more competition in the Mexican market. An FTA with the United States was a way of
blocking domestic efforts to roll back Mexican reforms, especially in the politically sensitive
agriculture sector. NAFTA helped deflect protectionist demands of industrial groups and special
interest groups in Mexico.12 One of the main goals of the Mexican government was to increase
investment confidence in order to attract greater flows of foreign investment and spur economic
growth. Since the entry into force of NAFTA, Mexico has used the agreement as a basic model
for other FTAs Mexico has signed with other countries.13
For the United States, NAFTA represented an opportunity to expand the growing export market to
the south, but it also represented a political opportunity for the United States and Mexico to work
together in resolving some of the tensions in the bilateral relationship.14 An FTA with Mexico
would help U.S. businesses expand exports to a growing market of almost 100 million people.
U.S. officials also recognized that imports from Mexico would likely include higher U.S. content
than imports from Asian countries. In addition to the trade and investment opportunities that
8 See CRS Report R40784, Mexico’s Free Trade Agreements, by M. Angeles Villarreal.
9 United States International Trade Commission (USITC), The Likely Impact on the United States of a Free Trade
Agreement with Mexico, Publication 2353, February 1991.
10 Ibid., pp. 1-2.
11 Gary Clyde Hufbauer and Jeffrey J. Schott, NAFTA Revisited: Achievements and Challenges, Institute for
International Economics, October 2005.
12 Ibid.
13 Mexico has a total of 12 free trade agreements involving 44 countries. These include agreements with most countries
in the Western Hemisphere including the United States, Canada, Chile, Colombia, Costa Rica, Nicaragua, Peru,
Guatemala, El Salvador, and Honduras. In addition, Mexico has negotiated FTAs outside of the Western Hemisphere
and entered into agreements with Israel, Japan, and the European Union.
14 Hufbauer and Schott, NAFTA Revisited: Achievements and Challenges, pp. 2-3.
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NAFTA represented, an agreement with Mexico would be a way to support the growth of political
pluralism and a deepening of democratic processes in Mexico. NAFTA also presented an
opportunity for the United States to spur the slow progress on the Uruguay Round of multilateral
trade negotiations.15
Overview of NAFTA Provisions
At the time that NAFTA was implemented, the U.S.-Canada FTA was already in effect and U.S.
tariffs on most Mexican goods were low. NAFTA opened up the U.S. market to increased
Mexican imports and the Mexican market to the United States and Canada, creating a single
market with 400 million people and accounting for one-third of the world’s output of
approximately $1 trillion per year.16 Some of the key NAFTA provisions included tariff and non-
tariff trade liberalization, rules of origin, services trade, foreign investment, intellectual property
rights protection, government procurement, and dispute resolution. Labor and environmental
provisions were included in separate NAFTA side agreements.
Removal of Trade Barriers
The market opening provisions of the agreement gradually eliminated all tariffs and most non-
tariff barriers on goods produced and traded within North America over a period of fifteen years
after it entered into force. Some tariffs were eliminated immediately, while others were phased
out in various schedules of five to fifteen years. U.S. import-sensitive sectors, such as glassware,
footwear, and ceramic tile, received longer phase-out schedules.17 NAFTA provided the option of
accelerating tariff reductions if the countries involved agreed.18 The agreement included
safeguard provisions in which the importing country could increase tariffs, or impose quotas in
some cases, on imports during a transition period if domestic producers faced serious injury as a
result of increased imports from another NAFTA country. It terminated all existing drawback
programs by January 1, 2001.19
Given that the U.S.-Canada FTA was already in place, most of the market opening measures
resulted in the removal of U.S. tariffs and quotas applied to imports from Mexico, and Mexican
trade barriers applied to imports from the United States and Canada. At the time that NAFTA
went into effect, about 40% of U.S. imports from Mexico entered duty-free and the remainder
faced duties of up to 35%, with a trade-weighted average rate of about 7%. Mexico’s trade-
weighted tariff on U.S. agricultural products averaged about 11%. Also affecting U.S.-Mexico
trade were both countries’ phytosanitary rules, Mexican import licensing requirements, and U.S.
marketing orders.20
15 Ibid.
16 Woodrow Wilson International Center for Scholars, NAFTA at 10: Progress, Potential, and Precedents, p. 20.
17 Governments of Canada, the United Mexican States, and the United States of America, Description of the Proposed
North American Free Trade Agreement, August 12, 1992.
18 Congressional Quarterly Almanac 1993, pp. 171-175, 180-181.
19 A duty drawback is the refund or waiver in whole or in part of customs duties assessed or collected upon importation
of an article or materials which are subsequently exported.
20 Marketing orders were designed to set national guidelines for product quality, market promotion, and supply levels.
The most significant Mexican products that were affected by U.S. marketing orders included tomatoes, onions,
(continued...)
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Some of the more significant changes took place in the textiles, apparel, automotive, and
agricultural industries. Elimination of trade barriers in these key industries are summarized below.
• Textiles and Apparel Industries. NAFTA phased out all duties on textile and
apparel goods within North America meeting specific NAFTA rules of origin21
over a 10-year period. Prior to NAFTA, 65% of U.S. apparel imports from
Mexico entered duty-free and quota-free, and the remaining 35% faced an
average tariff rate of 17.9%. Mexico’s average tariff on U.S. textile and apparel
products was 16%, with duties as high as 20% on some products.22
• Automotive Industry. NAFTA phased out Mexico’s restrictive auto decree. It
phased out all U.S. tariffs imports from Mexico and Mexican tariffs on U.S. and
Canadian products as long as they met the rules of origin requirements of 62.5%
North American content for autos, light trucks, engines and transmissions; and
60% for other vehicles and automotive parts. Some tariffs were eliminated
immediately, while others were phased out in periods of 5 to 10 years. Prior to
NAFTA, the United States assessed the following tariffs on imports from
Mexico: 2.5% on automobiles, 25% on light-duty trucks, and a trade-weighted
average of 3.1% for automotive parts. Mexican tariffs on U.S. and Canadian
automotive products were as follows: 20% on automobiles and light trucks, and
10-20% on auto parts.23
• Agriculture. NAFTA set out separate bilateral undertakings on cross-border
trade in agriculture, one between Canada and Mexico, and the other between
Mexico and the United States. As a general matter, U.S.-Canada FTA provisions
continued to apply on trade with Canada.24 Regarding U.S.-Mexico agriculture
trade, NAFTA eliminated most non-tariff barriers in agricultural trade, either
through their conversion to tariff-rate quotas (TRQ’s)25 or ordinary tariffs. Tariffs
were phased out over a period of 15 years with sensitive products such as sugar
and corn receiving the longest phase-out periods. Approximately one-half of
U.S.-Mexico agricultural trade became duty-free when the agreement went into
effect. Prior to NAFTA, most tariffs, on average, in agricultural trade between the
United States and Mexico were fairly low though some U.S. exports to Mexico
faced tariffs as high as 12%. However, approximately one-fourth of U.S.
agricultural exports to Mexico (by value) were subjected to restrictive import
licensing requirements.26
(...continued)
avocados, grapefruit, oranges, olives, and table grapes.
21 NAFTA rules of origin for textiles and apparel define when imported textile or apparel goods qualify for preferential
treatments. For most products, the rule of origin is “yarn forward”, which means that goods must be produced from
yarn made in a NAFTA country to benefit from preferential treatment.
22 Business Roundtable, NAFTA: A Decade of Growth, Prepared by The Trade Partnership, Washington, DC, February
2004, p. 33.
23 Ibid., p. 30.
24 Governments of Canada, the United Mexican States, and the United States of America, Description of the Proposed
North American Free Trade Agreement, August 12, 1992, p. 12.
25 Tariff-rate quotas (TRQs) allowed NAFTA partners to export specified quantities of a product to other NAFTA
countries at a relatively low tariff, but subjected all imports of the product above a pre-determined threshold to a higher
tariff.
26 Business Roundtable, NAFTA: A Decade of Growth, p. 35.
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Services Trade Liberalization
NAFTA services provisions established a set of basic rules and obligations in services trade
among partner countries. The agreement expanded on initiatives in the U.S.-Canada FTA and the
Uruguay Round of multilateral trade negotiations to create internationally-agreed disciplines on
government regulation of trade in services.27 The agreement granted services providers certain
rights concerning nondiscriminatory treatment, cross-border sales and entry, investment, and
access to information. However, there were certain exclusions and reservations by each country.
These included maritime shipping (United States), film and publishing (Canada), and oil and gas
drilling (Mexico).28 Although NAFTA liberalized certain service sectors in Mexico, particularly
financial services, which profoundly altered its banking sector, other sectors were barely
affected.29 In telecommunications services, NAFTA partners agreed to exclude provision of, but
not the use of, basic telecommunications services. NAFTA granted a “bill of rights” for the
providers and users of telecommunications services, including access to public
telecommunications services; connection to private lines that reflect economic costs and available
on a flat-rate pricing basis; and the right to choose, purchase, or lease terminal equipment best
suited to their needs.30 However, NAFTA did not require parties to authorize a person of another
NAFTA country to provide or operate telecommunications transport networks or services.
NAFTA did not bar a party from maintaining a monopoly provider of public networks or services,
such as Telmex, Mexico’s dominant telecommunications company.31
Other Provisions
In addition to market opening measures through the elimination of tariff and non-tariff barriers,
NAFTA incorporated numerous other provisions, including foreign investment, intellectual
property rights (IPR), dispute resolution, and government procurement.
• Foreign Investment. NAFTA removed significant investment barriers, ensured
basic protections for NAFTA investors, and provided a mechanism for the
settlement of disputes between investors and a NAFTA country. NAFTA
provided for “non-discriminatory treatment” for foreign investment by NAFTA
parties in certain sectors of other NAFTA countries.32 The agreement included
explicit country-specific liberalization commitments and exceptions to national
treatment. Exemptions from NAFTA investment provisions include the energy
sector in Mexico in which the Mexican government reserved the right to prohibit
foreign investment. It also included exceptions related to national security and to
Canada’s cultural industries.33
27 The Governments of Canada, the United Mexican States, and the United States of America, Description of the
Proposed North American Free Trade Agreement, August 12, 1992, pp. 23-24.
28 United States General Accounting Office (GAO), “North American Free Trade Agreement: Assessment of Major
Issues, Volume 2,” Report to the Congress, September 1993, pp. 35-36.
29 Hufbauer and Schott, NAFTA Revisited, pp. 25-29.
30 GAO, Report to Congress, September 1993, pp. 38-39.
31 Description of the Proposed North American Free Trade Agreement, August 12, 1992, p. 29.
32 Description of the Proposed North American Free Trade Agreement, August 12, 1992, pp. 30-31.
33 Ibid., pp. 31-32.
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• IPR. NAFTA built upon the then-ongoing Uruguay Round negotiations that
would create the Trade Related Aspects of Intellectual Property Rights (TRIPS)
agreement in the World Trade Organization and on various existing international
intellectual property treaties. The agreement set out specific enforceable
commitments by NAFTA parties regarding the protection of copyrights, patents,
trademarks, and trade secrets, among other provisions.
• Dispute Settlement Procedures. NAFTA’s provisions for preventing and settling
disputes were built upon provisions in the U.S.-Canada FTA. NAFTA created a
system of arbitration for resolving disputes that included initial consultations,
taking the issue to the NAFTA Trade Commission, or going through arbitral
panel proceedings.34 NAFTA included separate dispute settlement provisions for
addressing disputes over antidumping and countervailing duty determinations.
• Government Procurement. NAFTA opened up a significant portion of federal
government procurement in each country on a nondiscriminatory basis to
suppliers from other NAFTA countries for goods and services. It contains some
limitations for procurement by state-owned enterprises.35
NAFTA Side Agreements on Labor and the Environment
The NAFTA text did not include labor or environmental provisions, which was a major concern
to many in Congress at the time of the agreement’s consideration. Some policy makers called for
additional provisions to address numerous concerns about labor and environmental issues,
specifically in Mexico. Other policy makers argued that the economic growth generated by the
FTA would increase Mexico’s resources available for environmental and worker rights protection.
However, congressional concerns from policy makers, as well as concerns from labor and
environmental groups, remained strong.
Shortly after he began his presidency, President Clinton addressed labor and environmental
concerns by joining his counterparts in Canada and Mexico in negotiating formal side
agreements. The NAFTA implementing legislation included provisions related to the side
agreements, authorizing U.S. participation in NAFTA labor and environmental commissions and
appropriations for these activities. The North American Agreement on Labor Cooperation
(NAALC) and the North American Agreement on Environmental Cooperation (NAAEC) entered
into force on January 1, 1994, the same day as NAFTA.36 NAFTA implementing legislation also
included two adjustment assistance programs, designed to ease trade-related labor problems: the
NAFTA Transitional Adjustment Assistance (NAFTA-TAA) Program and the U.S. Community
Adjustment and Investment Program (USCAIP).
The labor and environmental side agreements included language to promote cooperation on labor
and environmental matters as well as provisions to address a party’s failure to enforce its own
labor and environmental laws. Perhaps most notable were the side agreements’ dispute settlement
34 If the parties are unable to resolve the issue through consultations, they may take the dispute to the NAFTA Trade
Commission, which is comprised of Ministers or cabinet-level officers designated by each country. A party may also
request the establishment of an arbitral panel, which may make recommendations for the resolution of the dispute.
35 GAO, Report to Congress, September 1993, pp. 69-71.
36 The USCAIP, administered by the North American Development Bank, provides financial assistance to communities
with significant job losses due to changes in trade patterns with Mexico or Canada as a result of NAFTA.
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processes that, as a last resort, may impose monetary assessments and sanctions to address a
party’s failure to enforce its laws.37 NAFTA marked the first time that labor and environmental
provisions were associated with an FTA. For many, it represented an opportunity for cooperating
on environmental and labor matters across borders and for establishing a new type of relationship
among NAFTA partners.38
In addition to the two trilateral side agreements, the United States and Mexico entered into a
bilateral side agreement to NAFTA on border environmental cooperation.39 In this agreement, the
two governments committed to cooperate on developing environmental infrastructure projects
along the U.S.-Mexico border to address concerns about the degradation of the environment
along the U.S.-Mexico border due to increased economic activity. The agreement established two
organizations to address these concerns: the Border Environment Cooperation Commission
(BECC), located in Juárez, Mexico, and the North American Development Bank (NADBank),
located in San Antonio, Texas. The sister organizations work closely together and with other
partners at the federal, state and local level in the United States and Mexico to develop, certify,
and facilitate financing for water and wastewater treatment, municipal solid waste disposal, and
related projects on both sides of the U.S.-Mexico border region. Both organizations also have
ongoing efforts to measure the results of the projects on the border region. From 1995 to 2011,
BECC certified 189 projects (86 in the United States and 103 in Mexico), representing nearly
$4.3 billion in environmental infrastructure investment, directly benefiting 14 million border
residents. NADBank has financed 152 of these projects with approximately $1.33 billion in loans
and grants.40 These projects have provided border residents with more access to drinking water,
sewer and wastewater treatment. They also include water conservation, air quality, and renewable
energy projects.41
Trade Trends and Economic Effects
Many economists contend that trade liberalization promotes overall economic growth and
efficiency among trading partners, although there are short-term adjustment costs. NAFTA was
unusual in global terms because it was the first time that an FTA linked two wealthy, developed
countries with a low-income developing country. For this reason, the agreement received
considerable attention by U.S. policy makers, manufacturers, service providers, agriculture
producers, labor unions, non-government organizations, and academics. Proponents argued that
the agreement would help generate thousands of jobs and reduce income disparity between
Mexico and its northern neighbors. Opponents warned that the agreement would create huge job
losses in the United States as companies moved production to Mexico to lower costs.42
37 For more information, see CRS Report RS22823, Overview of Labor Enforcement Issues in Free Trade Agreements,
by Mary Jane Bolle, and CRS Report 97-291, NAFTA: Related Environmental Issues and Initiatives, by Mary
Tiemann.
38 Woodrow Wilson International Center for Scholars, NAFTA at 10: Progress, Potential, and Precedents, pp. 20-30.
39 The Agreement Between the Government of the United States of America and the Government of the United Mexican
States Concerning the Establishment of a Border Environment Cooperation Commission and a North American
Development Bank, November 1993.
40 Border Environment Cooperation Commission, 2011 Annual Report, p. 7.
41 Ibid.
42 See Ross Perot with Pat Choate, Save Your Job, Save Our Country: Why NAFTA Must be Stopped-Now!, New York,
1993.
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Estimating the economic impact of trade agreements is a daunting task due to a lack of data and
important theoretical and practical matters associated with generating results from economic
models. In addition, such estimates provide an incomplete accounting of the total economic
effects of trade agreements.43 Numerous studies suggest that NAFTA achieved many of the
intended trade and economic benefits.44 Other studies suggest that NAFTA has come at a cost to
U.S. workers.45 This has been in keeping with what most economists maintain, that trade
liberalization promotes overall economic growth among trading partners, but that there are both
winners and losers from adjustments.
Not all changes in trade and investment patterns within North America since 1994 can be
attributed to NAFTA because trade has also been affected by a number of factors. The sharp
devaluation of the peso at the end of the 1990s and the associated recession in Mexico had
considerable effects on trade, as did the rapid growth of the U.S. economy during most of the
1990s and, more recently, the economic slowdown caused by the 2008 financial crisis. Trade-
related job gains and losses since NAFTA may have accelerated trends that were ongoing prior to
NAFTA and may not be totally attributable to the trade agreement.
U.S. Trade Trends with NAFTA Partners
Overall Trade
U.S. trade with its NAFTA partners has more than tripled since the agreement took effect. It has
increased more rapidly than trade with the rest of the world. In 2011, trilateral trade among
NAFTA partners reached the $1 trillion threshold. Trade between the United States and Mexico
contributed considerably to growth in North American trade, accounting for approximately half of
the increase in regional trade since 1994. Between 1993 and 2013, total U.S. trade with Mexico
increased by 522%. In comparison, U.S. trade with Canada increased by 200%, while trade with
non-NAFTA countries increased by 279%. In 2013, Canada was the leading market for U.S.
exports, while Mexico ranked second. The two countries accounted for 33% of total U.S. exports
in 2013. In imports, Canada and Mexico ranked second and third, respectively, as suppliers of
U.S. imports in 2013. The two countries accounted for 27% of U.S. imports.46
Most of the trade-related effects of NAFTA may be attributed to changes in trade and investment
patterns with Mexico because economic integration between Canada and the United States had
already been taking place. As mentioned previously, while NAFTA may have accelerated U.S.-
Mexico trade since 1993, other factors, such as economic growth patterns, also affected trade. As
trade tends to increase during cycles of economic growth, it tends to decrease as growth declines.
43 For more information, see CRS Report R41660, U.S.-South Korea Free Trade Agreement and Potential Employment
Effects: Analysis of Studies, by Mary Jane Bolle and James K. Jackson.
44 See for example, Gary Clyde Hufbauer and Jeffrey J. Schott, NAFTA Revisited: Achievements and Challenges,
Institute for International Economics, October 2005; Center for Strategic and International Studies, NAFTA’s Impact on
North America: The First Decade, Edited by Sidney Weintraub, 2004; and U.S. Chamber of Commerce, Opening
Markets, Creating Jobs: Estimated U.S. Employment Effects of Trade with FTA Partners, 2010.
45 See for example, Robert E. Scott, Heading South: U.S.-Mexico Trade and Job Displacement under NAFTA,
Economic Policy Institute, May 3, 2011; and The Frederick S. Pardee Center, The Future of North American Trade
Policy: Lessons from NAFTA, Boston University, November 2009.
46 Trade statistics in this paragraph are derived from data from the U.S. International Trade Commission’s Interactive
Tariff and Trade Data Web, at http://dataweb.usitc.gov.
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The economic downturns in 2001 and 2009, for example, likely played a role in the decline in
both U.S. exports to and imports from Canada and Mexico, as shown in Figure 1.
Figure 1. U.S. Merchandise Trade with NAFTA Partners: 1993-2013
(billions of nominal U.S. dollars)
700
600
500
400
ns
300
Billio
$ in
200
U.S.
100
0
-100
-200
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
U.S. Exports
U.S. Imports
Trade Balance
Source: Compiled by CRS using trade data from the U.S. International Trade Commission’s Interactive Tariff
and Trade Data Web, at http://dataweb.usitc.gov.
Energy Trade Implications
Trade in petroleum products is a central component of U.S. trade with both Canada and Mexico.
Approximately 16% of total trade with NAFTA partners is in petroleum products. Canada and
Mexico accounted for 40% ($108.2 billion) of total U.S. crude oil imports ($273.5 billion) in
2013. Canada is the leading supplier of crude petroleum oil to the United States, followed by
Saudi Arabia and Mexico. If petroleum products are excluded from trade statistics, the United
States has had a trade surplus with NAFTA partners in merchandise trade since 2011, as shown in
Figure 2. In 2013, the trade surplus in non-petroleum products was an estimated $9.2 billion.
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Figure 2. Non-Petroleum Trade with NAFTA Partners: 1993-2013
(billions of nominal U.S. dollars)
600
500
400
s
n
io
300
ill
B
$ in
200
.S.
U
100
0
-100
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
Non-petroleum exports
Non-petroleum imports
Balance
Source: Compiled by CRS using trade data from the U.S. International Trade Commission’s (USITC’s)
Interactive Tariff and Trade Data Web, at http://dataweb.usitc.gov.
Notes: The United States uses different classifications of trade for trade statistics. Trade data in this chart
excludes trade in three categories, which include Harmonized Tariff Schedule (HTS) code 2709, petroleum oils
and oils from bituminous minerals, crude; HTS code 2710, petroleum oils and oils from bituminous minerals
(other than crude) and products therefrom, NESOI, containing 70% (by weight) or more of these oils; and HTS
code 2711, petroleum gases and other gaseous hydrocarbons. See http://dataweb.usitc.gov.
Imports in crude petroleum oil rank first among the five leading import items from NAFTA
partners, as shown in Figure 3.47 The value of crude oil imports from both Canada and Mexico in
2013 totaled $108.3 billion. Since 2007, crude petroleum imports have ranked first among leading
imports from both countries, reaching a high of $109.8 billion in 2012. In 2009, the value of
crude oil imports dropped considerably, from $100.1 billion in 2008 to $59.1 billion in 2009,
reflecting a drop in oil prices that year.
47 This statistic is based on the Harmonized Tariff Schedule of the United States (HTS). The HTS comprises a
hierarchical structure for describing all goods in trade for duty, quota, and statistical purposes. This structure is based
upon the international Harmonized Commodity Description and Coding System (HS), administered by the World
Customs Organization in Brussels.
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Figure 3. Top Five Import Items from NAFTA Partners
(HTS 4-digit level)
120
100
Crude petroleum oil
80
Motor vehicles
S $
s U 60
Motor vehicle parts
lion
Bil 40
Non-crude petroleum oil
products
20
Motor vehicles for the
transport of goods
0
2007
2008
2009
2010
2011
2012
2013
Source: Compiled by CRS using trade data from the USITC at http://dataweb.usitc.gov.
Notes: Statistics in this figure are derived from the Harmonized Tariff Schedule (HTS) of the United States at
the 4-digit level. The HTS comprises a hierarchical structure for describing all goods in trade for duty, quota, and
statistical purposes. This structure is based upon the international Harmonized Commodity Description and
Coding System (HS), administered by the World Customs Organization in Brussels. See http://dataweb.usitc.gov.
Trade with Canada
U.S. trade with Canada more than doubled in the first decade of the FTA/NAFTA (1989-1999)
from $166.5 billion to $362.2 billion. U.S. exports to Canada increased from $100.2 billion in
1993 to $300.2 billion in 2013, an increase of 200%. U.S. imports from Canada increased from
$110.9 billion in 1993 to $332.1 billion in 2013, also a 200% increase (see Table A-1). After
falling off during the recession of 2001, total trade with Canada reached a new high of $596.5
billion in 2008, only to fall victim to the financial crisis in 2009 when it fell to $429.6 billion. In
2011, total trade had returned to 2008 levels at $597.3 billion. The United States has run a trade
deficit with Canada since the FTA/NAFTA era, increasing from $9.9 billion in 1989 to $74.6
billion in 2008, before falling back during the 2009 recession. In 2013, the trade deficit with
Canada was $31.9 billion. While the increase in the trade deficit with Canada has been attributed
to the FTA/NAFTA, the increase has been uneven and may also be attributed to other economic
factors, such as energy prices.48
48 Trade statistics in this paragraph are derived from data from the U.S. International Trade Commission’s Interactive
Tariff and Trade Data Web, at http://dataweb.usitc.gov.
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Trade with Mexico
The United States is, by far, Mexico’s leading partner in merchandise trade. U.S. exports to
Mexico increased rapidly since NAFTA, increasing from $41.6 billion in 1993 to $226.2 billion
in 2013, an increase of 444% (see Table A-1 in Appendix A). U.S. imports from Mexico
increased from $39.9 billion in 1993 to $280.5 billion in 2013, an increase of 603%. The trade
balance with Mexico went from a surplus of $1.7 billion in 1993 to a deficit of $61.4 billion in
2012. In 2013, the trade deficit with Mexico decreased to $54.3 billion. Fourteen percent of total
U.S. merchandise exports were destined for Mexico and 12% of U.S. merchandise imports came
from Mexico.49 In services, the United States had a surplus of $12.3 billion in 2012 in trade with
Mexico. U.S. private services exports to Mexico increased from $10.4 billion in 1993 to $27.4
billion in 2012. U.S. private services imports from Mexico increased from $7.4 billion in 1993 to
$15.1 billion in 2012, as shown in Table A-2.50
NAFTA’s Effect on the U.S. Economy
The overall net effect of NAFTA on the U.S. economy has been relatively small, primarily
because total trade with both Mexico and Canada was equal to less than 5% of U.S. GDP at the
time NAFTA went into effect. Because many, if not most, of the economic effects came as a result
of U.S.-Mexico trade liberalization, it is also important to take into account that two-way trade
with Mexico was equal to an even smaller percentage of GDP (1.4%) in 1994. Thus, any changes
in trade patterns would not be expected to be significant in relation to the overall U.S. economy. A
major challenge in assessing NAFTA is separating the effects that came as a result of the
agreement from other factors. U.S. trade with Mexico and Canada was already growing prior to
NAFTA and it likely would have continued to do so without an agreement. A 2003 report by the
Congressional Budget Office observed that it was difficult to precisely measure the effects of
NAFTA. It estimated that NAFTA likely increased annual U.S. GDP, but by a very small amount
– “probably no more than a few billion dollars, or a few hundredths of a percent.”51 In some
sectors, trade-related effects could have been more significant, especially in those industries that
were more exposed to the removal of tariff and non-tariff trade barriers, such as the textile,
apparel, automotive, and agriculture industries.
Studies by the U.S. International Trade Commission (USITC) on the effects of NAFTA pointed
out the difficulty in isolating the agreement’s effects from other factors. Although the effects of
NAFTA are not easily measured, the USITC provided some estimates over the years. A 2003
study estimated that U.S. GDP could experience an increase between 0.1% and 0.5% upon full
implementation of the agreement.52 Another USITC study that was congressionally mandated in
1997 offered a comprehensive assessment of the operation and effects of NAFTA after three
years.53 The report estimated that NAFTA had a small, but positive, effect on the overall U.S.
49 Merchandise trade statistics in this paragraph are derived from data from the U.S. International Trade Commission’s
Interactive Tariff and Trade Data Web, at http://dataweb.usitc.gov.
50 Services trade statistics in this paragraph are derived from the Bureau of Economic Analysis online database at
http://www.bea.gov.
51 Congressional Budget Office of the United States, “The Effects of NAFTA on U.S.-Mexican Trade and GDP,” A
CBO Paper, May 2003, p. xiv.
52 USITC, “The Impact of Trade Agreements: Effect of the Tokyo Round, U.S.-Israel FTA, U.S.-Canada FTA,
NAFTA, and the Uruguay Round on the U.S. Economy,” Publication 3621, August 2003.
53 USITC, “The Impact of the North American Free Trade Agreement on the U.S. Economy and Industries: A Three-
(continued...)
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economy. Some of the findings include the following: data inadequacies at the industry level
made it difficult to isolate the effects of NAFTA on absolute trade flows; U.S. trade with NAFTA
partners increased more rapidly than U.S. trade with the rest of the world; the share of U.S.
exports in the Mexican market increased by a higher percentage than the share of total imports
from other countries; industries such as autos, chemicals, textiles, and electronics benefitted by
achieving synergies across the North American market.54
U.S. Industries and Supply Chains
Many economists and other observers have credited NAFTA with helping U.S. manufacturing
industries, especially the U.S. auto industry, become more globally competitive through the
development of supply chains.55 Much of the increase in U.S.-Mexico trade, for example, can be
attributed to specialization as manufacturing and assembly plants have reoriented to take
advantage of economies of scale. As a result, supply chains have been increasingly crossing
national boundaries as manufacturing work is performed wherever it is most efficient.56 A
reduction in tariffs in a given sector not only affects prices in that sector but also in industries that
purchase intermediate inputs from that sector. The importance of these direct and indirect effects
is often overlooked, according to one study. The study suggests that these linkages offer
important trade and welfare gains from free trade agreements and that ignoring these input-output
linkages could underestimate potential trade gains.57
Much of the trade between the United States and its NAFTA partners occurs in the context of
production sharing as manufacturers in each country work together to create goods. The
expansion of trade has resulted in the creation of vertical supply relationships, especially along
the U.S.-Mexico border. The flow of intermediate inputs produced in the United States and
exported to Mexico and the return flow of finished products greatly increased the importance of
the U.S.-Mexico border region as a production site.58 U.S. manufacturing industries, including
automotive, electronics, appliances, and machinery, all rely on the assistance of Mexican
manufacturers. One report estimates that 40% of the content of U.S. imports from Mexico and
25% of the content of U.S. imports from Canada are of U.S. origin. In comparison, U.S. imports
from China are said to have only 4% U.S. content. Taken together, goods from Mexico and
Canada represent about 75% of all the U.S. domestic content that returns to the United States as
imports.59
NAFTA was instrumental in the integration of the North American auto industry, which
experienced some of the most significant changes in trade following the agreement. U.S. auto
parts producers may use inputs and components produced by another NAFTA partner to assemble
(...continued)
Year Review,” Publication 3045, June 1997.
54 Ibid.
55 Hufbauer and Schott, NAFTA Revisited, pp. 20-21.
56 Ibid., p. 21.
57 Lorenzo Caliendo and Fernando Parro, Estimates of the Trade and Welfare Effects of NAFTA, National Bureau of
Economic Research, November 2012, pp. 1-5.
58 Gordon H. Hanson, North American Economic Integration and Industry Location, National Bureau of Economic
Research, June 1998.
59 Christopher E. Wilson, Working Together: Economic Ties Between the United States and Mexico, Woodrow Wilson
International Center for Scholars, November 2011, pp. 1-5.
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parts, which are then shipped to another NAFTA country where they are assembled into a vehicle
that is sold in any of the three NAFTA countries.60 NAFTA provisions consisted of a phased
elimination of tariffs and the gradual removal of many non-tariff barriers to trade. It provided for
uniform country of origin provisions, enhanced protection of intellectual property rights, adopted
less restrictive government procurement practices, and eliminated performance requirements on
investors from other NAFTA countries. NAFTA established the removal of Mexico’s restrictive
trade and investment policies and the elimination of U.S. tariffs on autos and auto parts.
After NAFTA’s entry into force, U.S. trade in vehicles and auto parts increased rapidly. Mexico
became a more significant trading partner in the U.S. motor vehicle market as U.S. auto exports
to Mexico increased 245% while imports increased 587% (see Table 1). Mexico’s share in U.S.
total trade in motor vehicles increased from 5% to 18% between 1993 and 2013, while the share
from Canada and other countries decreased. In auto parts, Mexico’s share increased from 21% to
36% over the same period. In 2013, Mexico was the leading supplier of automotive goods for the
United States, accounting for 28% ($76.3 billion) of total U.S. motor vehicle and auto parts
imports. Canada ranked second with 21% ($58.0 billion) of the U.S. market share in 2013.61
Table 1. U.S. Trade in Vehicles and Auto Parts: 1993 and 2013
(billions of U.S. dollars)
% Change
1993
2013
1993-2011
Exports Imports Total Exports Imports Total Exports Imports
Mexico
Vehicles 0.2
3.7
3.9
4.8
40.1
44.9
2300%
984%
Parts 7.3
7.4
14.7
21.1
36.2
57.3
189%
389%
Total 7.5
11.1
18.6
25.9
76.3
102.2
245%
587%
Canada
Vehicles 8.2
26.7
34.9
26.2
44.5
70.7
220%
67%
Parts 18.2
10.3
28.5
26.5
13.5
40.0
46%
31%
Total 26.4
37.0
63.4
52.7
58.0
110.7
100%
57%
World
Vehicles 18.9
63.0
81.9
73.1
175.7
248.8
287%
179%
Parts 33.4
38.3
71.7
60.6
100.4
161.0
81%
162%
Total 52.3
101.3
153.6
133.7
276.1
409.8
156%
173%
Source: Compiled by CRS using trade data from the USITC at http://dataweb.usitc.gov. For 2013, “vehicles” consists
of items under the North American Industrial Classification System (NAICS) number 3361 and “parts” consists of
items under NAIC number 3363.
Note: The NAICS is the standard used by Federal statistical agencies in classifying business establishments for the
purpose of collecting, analyzing, and publishing statistical data related to the U.S. business economy.
60 Business Roundtable, NAFTA: A Decade of Growth, p. 8.
61 Merchandise trade statistics in this paragraph are derived from data from the U.S. International Trade Commission’s
Interactive Tariff and Trade Data Web, at http://dataweb.usitc.gov.
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A number of studies have found that NAFTA has brought economic and social benefits to the
Mexican economy as a whole, but that the benefits have not been evenly distributed throughout
the country.62 The agreement also had a positive impact on Mexican productivity. A 2011 World
Bank study found that the increase in trade integration after NAFTA had a positive effect on
stimulating the productivity of Mexican plants.63 Most post-NAFTA studies on economic effects
have found that the net overall effects on the Mexican economy tended to be positive but modest.
While there have been periods of positive and negative economic growth in Mexico after the
agreement was implemented, it is difficult to measure precisely how much of these economic
changes were attributed to NAFTA. A World Bank study assessing some of the economic impacts
from NAFTA on Mexico concluded that NAFTA helped Mexico get closer to the levels of
development in the United States and Canada. The study states that NAFTA helped Mexican
manufacturers adapt to U.S. technological innovations more quickly; likely had positive impacts
on the number and quality of jobs; reduced macroeconomic volatility, or wide variations in the
GDP growth rate, in Mexico; increased the levels of synchronicity in business cycles in Mexico,
the United States, and Canada; and reinforced the high sensitivity of Mexican economic sectors to
economic developments in the United States.64
Other studies suggest that NAFTA has been disappointing in that it failed to significantly improve
the Mexican economy or lower income disparities between Mexico and its northern neighbors.65
Some argue that the success of NAFTA in Mexico was probably limited by the fact that NAFTA
was not supplemented by complementary policies that could have promoted a deeper regional
integration effort. These policies could have included improvements in education, industrial
policies, and/or investment in infrastructure.66
One of the more controversial aspects of NAFTA is related to the agricultural sector in Mexico
and the perception that NAFTA has caused a higher amount of worker displacement in this sector
than in other economic sectors. Many critics of NAFTA say that the agreement led to severe job
displacement in agriculture, especially in the corn sector. One study estimates these losses to have
been over a million lost jobs in corn production between 1991 and 2000.67 However, while some
of the changes in the agricultural sector are a direct result of NAFTA as Mexico began to import
more lower-priced products from the United States, many of the changes can be attributed to
Mexico’s unilateral agricultural reform measures in the 1980s and early 1990s. Most domestic
reform measures consisted of privatization efforts and resulted in increased competition.
Measures included eliminating state enterprises related to agriculture and removing staple price
62 See for example, Robert A. Blecker and Gerardo Esquivel, NAFTA, Trade, and Development, Center for U.S.-
Mexican Studies (San Diego), El Colegio de la Frontera Norte, Woodrow Wilson International Center for Scholars, and
El Colegio de Mexico, WP 10-03, 2010; and Daniel Lederman, William F. Maloney, and Luis Servén, Lessons from
NAFTA for Latin America and the Caribbean, The World Bank, 2005.
63 Rafael E. de Hoyos and Leonardo Iacovone, Economic Performance under NAFTA, The World Bank Development
Research Group, May 2011, pp. 25-27.
64 Daniel Lederman, William F. Maloney, and Luis Servén, Lessons from NAFTA for Latin America and the
Caribbean, The World Bank, 2005.
65 Robert A. Blecker and Gerardo Esquivel, NAFTA, Trade, and Development, Center for U.S.-Mexican Studies, the
Mexico Institute of the Woodrow Wilson Center, El Colegio de la Frontera Norte, and El Colegio de México, USMEX
WP 10-03, 2010.
66 Ibid., p. 22.
67 Robert E. Scott, Carlos Salas, Bruce Campbell and Jeff Faux, Revisiting NAFTA: Still Not Working for North
America’s Workers, Economic Policy Institute, Briefing Paper #173, p. 43.
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supports and subsidies.68 These reforms coincided with NAFTA negotiations and continued
beyond the implementation of NAFTA in 1994. The unilateral reforms in the agricultural sector
make it difficult to separate those effects from the effects of NAFTA.
U.S.-Mexico Trade Market Shares
Mexico relies heavily on the United States as an export market; this reliance has diminished very
slightly over the years. The percentage of Mexico’s total exports going to the United States
decreased from 83% in 1993 to 78% in 2012 (see Figure 4). In addition, its share of the U.S.
market has lost ground since 2003 when China surpassed Mexico as the second-leading supplier
of U.S. imports. The United States is losing market share of Mexico’s import market. Between
1993 and 2012, the U.S. share of Mexico’s imports decreased from 78% to 55%. China is
Mexico’s second-leading source of imports.
Figure 4. Market Share as Percentage of Total Trade: Mexico and the United States
(1993-2012)
Source: Economist Intelligence Unit, from IMF International Financial Statistics.
Notes: Represents exports to and imports from other country as percentage of country’s total trade. Statistics
prior to 1993 are not available.
U.S. and Mexican Foreign Direct Investment
Foreign direct investment (FDI) has been an integral part of the economic relationship between
the United States and Mexico for many years, especially after NAFTA. Two-way investment
68 Mexico’s unilateral agricultural reform measures removed government subsidies and price controls in the agricultural
sector that resulted in rising prices for tortillas. Tortillas are the basic staple for the Mexican diet and a necessity of the
poor. For this reason, higher prices had a greater effect on the poor than on middle- and higher-income Mexicans.
Mexico also reformed its Agrarian Law. Lands that had been distributed to ejidos or community rural groups following
the 1910 revolution gained the right to privatize. This led to more efficient production processes, especially in Northern
states.
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increased rapidly after the agreement went into effect. The United States is the largest source of
FDI in Mexico. The stock of U.S. FDI in Mexico increased from $15.2 billion in 1993 to $101.0
billion in 2012, a 564% increase (see Table A-4 in Appendix A). The flows of FDI have been
affected by other factors over the years, with higher growth during the period of economic
expansion during the late 1990s, and slower growth in recent years, possibly due to the economic
downturn caused by the 2008 global financial crisis and/or the increased violence in Mexico.
Mexican FDI in the United States, while substantially lower than U.S. investment in Mexico, has
also increased rapidly, from $1.2 billion in 1993 to $14.9 billion in 2012, an increase of over
1000% (See Table A-4).69
While Mexico’s unilateral trade and investment liberalization measures in the 1980s and early
1990s contributed to the increase of U.S. FDI in Mexico, NAFTA provisions on foreign
investment may have helped to lock in Mexico’s reforms and increase investor confidence.
NAFTA helped give U.S. and Canadian investors nondiscriminatory treatment of their
investments as well as investor protection in Mexico. Nearly half of total FDI investment in
Mexico is in the manufacturing industry.
Income Disparity
One of the main arguments in favor of NAFTA at the time it was being proposed by policy
makers was that the agreement would improve economic conditions in Mexico and narrow the
income disparity between Mexico and the United States and Canada. Studies that have addressed
the issue of economic convergence70 have noted that economic convergence in North America has
failed to materialize. One study states that NAFTA failed to fulfill the promise of closing the
Mexico-U.S. development gap and that this was partially due to the lack of deeper forms of
regional integration or cooperation between Mexico and the United States.71 The study contends
that domestic policies in both countries, along with underlying geographic and demographic
realities, contribute to the continuing disparities in income. The authors argue that neither Mexico
nor the United States adopted complementary policies after NAFTA that could have promoted a
more successful regional integration effort. These policies could include education, industrial
policies, and more investment in border and transportation infrastructure. The authors also note
that other developments, such as increased security along the U.S.-Mexico border after the
September 11 terrorist attacks, have made it much more difficult for the movement of goods and
services across the border and for improving regional integration. They argue that the two
countries could cooperate on policies that foster convergence and economic development in
Mexico instead of increasing security and “building walls.”72
A World Bank study states that NAFTA brought economic and social benefits to the Mexican
economy, but that it is not enough to help narrow the disparities in economic conditions between
69 Foreign direct investment data in this section is derived from data from the Bureau of Economic Analysis online
database at http://www.bea.gov.
70 Economic convergence can be broadly defined as a narrowing of the disparities in the economic levels and the
manufacturing performances of particular countries or their regions. The goal of the theory of economic convergence is
to research and analyze the factors influencing the rates of economic growth and real per capita income in countries.
71 Robert A. Blecker and Gerardo Esquivel, NAFTA, Trade, and Development, Working Paper 10-03, Center for U.S.-
Mexican Studies (San Diego), the Mexico Institute of the Woodrow Wilson Center (Washington DC), El Colegio de la
Frontera Norte (Tijuana), and El Colegio de México (Mexico City), 2010, p. 2.
72 Ibid., pp. 19-23.
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Mexico and the United States.73 It contends that Mexico needs to invest more in education,
innovation and infrastructure, and in the quality of national institutions. The study also states that
income convergence between a Latin American country and the United States is limited by the
wide differences in the quality of domestic institutions, in the innovation dynamics of domestic
firms, and in the skills of the labor force. While NAFTA had a positive effect on wages and
employment in some Mexican states, the wage differential within the country increased as a result
of trade liberalization.74 Another study also notes that the ability of Mexico to improve economic
conditions depends on its capacity to improve its national institutions, adding that Mexican
institutions did not improve significantly more than those of other Latin American countries since
NAFTA went into effect.75
Effect on Canada
As noted earlier, the U.S.-Canada FTA came into effect on January 1, 1989. Thus, trade
liberalization between the two countries was well underway—or already completed—by the time
of the implementation of NAFTA. This section summarizes the effect of trade liberalization from
both agreements on Canada.
From the Canadian perspective, the important consequence of the FTA may have been what did
not happen, that is, that many of the fears of opening up trade with the United States did not come
to pass. Canada did not become an economic appendage or “51st state” as many had feared. It did
not lose control over its water or energy resources; its manufacturing sector was not gutted.
Rather, as one Canadian commentator remarked, “free trade helped Canada to grow up, to turn its
face out to the world, to embrace its future as a trading nation, [and] to get over its chronic sense
of inferiority.”76 However, some hopes for the FTA, for example, that it would be a catalyst for
greater productivity in Canadian industry, also have not come to pass.
U.S.-Canada Trade Market Shares
The United States is the number one purchaser of Canadian goods and supplier of imports to
Canada. Canada’s share of its exports going to the United States steadily increased during the
1980s, from 60.6% in 1980 to 70.7% in 1989, the first year of the FTA. Canada’s percentage of
total exports to the United States continued to increase, reaching 87.7% in 2002. The relative
importance of the value of U.S. and Canadian trade with each other, however, has been falling in
recent years. Since 2002, this percentage has steadily fallen back to 74.5% in 2012. The U.S.
share of Canada’s total imports, which reached a peak of 70.0% in 1983, topped out at 68.7%
during the free trade era and has been steadily dropping ever since to a low of 50.6% in 2012 (see
Figure 5).
73 Lederman, Maloney, and Servén, Lessons from NAFTA for Latin America and the Caribbean, The World Bank,
2005.
74 Ibid.
75 William Easterly, Norbert Fiess, and Daniel Lederman, “NAFTA and Convergence in North America: High
Expectations, Big Events, Little Time,” Economía, Fall 2003.
76 John Ibbitson, “After 25 Years, Free-Trade Deal with U.S. Has Helped Canada Grow Up,” The Globe and Mail,
September 29, 2012.
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Traditionally, Canada was the largest purchaser of U.S. exports and supplier of U.S. imports;
however, shares of both peaked before the free trade era. Canada purchased 23.5% of U.S.
exports in 1987 and equaled that figure in 2005, but it has since fallen off to 18.9% in 2012.
Canada traditionally was the largest supplier of U.S. imports, peaking at 20.6% in 1984, reaching
a NAFTA high of 20.1% in 1996, but has declined thereafter to 14.4% in 2012. China displaced
Canada as the largest supplier of U.S. imports in 2007.
Figure 5. Market Share as Percentage of Total Trade: Canada and the United States
(1980-2012)
Source: Economic Intelligence Unit, from IMF International Financial Statistics.
Note: Represents exports to and imports from other country as percentage of country’s total trade.
The composition of trade has also changed. Canada initially entered a manufacturing recession
after the conclusion of the FTA as branch plants of U.S. companies set up behind the Canadian
tariff wall were abandoned. However, more internationally competitive manufacturing sectors
thrived as long as the Canadian dollar (nicknamed the loonie for the soaring loon pictured on its
reverse) was relatively cheap. From a low point of a Canadian dollar worth US$0.65 in 2002, the
loonie reached parity in 2007, and has hovered around the parity point until 2013 before sliding to
a recent US$0.92. The appreciation has been attributed to the boom in Canada’s natural
resources—oil and gas displaced motor vehicles as Canada’s largest export to the United States in
2005. The “great recession” and the woes of the integrated North American auto sector also took
a toll on Canadian manufacturing.
For some advocates in Canada, free trade was meant to alleviate the long-term labor productivity
gap between the United States and Canada. Open competition was seen as forcing Canadian
industry to be more productive. In much of the free trade era, this gap could be accounted for by
the low value of the Canadian dollar. As adding capital equipment (often purchased from the
United States) was relatively more expensive than hiring extra workers, the latter was often
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employed. The appreciation of the Canadian dollar has made additional capitalization more
attractive, but labor productivity recently remained only at 72% of U.S. levels.77 The relatively
low productivity levels of Canadian industry, as well as its relatively low investments in research
and development (R&D), and relatively lower expenditures on information technology, are seen
as threatening to Canadian long-term competitiveness, and remain of concern to Canadian policy
makers, despite leading the organization of Economic Cooperation and Development’s ranking of
the population with post-secondary education.78
U.S. and Canadian Foreign Direct Investment
Two-way investment has also increased markedly during the free trade era, both in terms of stock
and flow of investment. The United States is the largest single investor in Canada with a stock of
FDI into Canada reaching $351.5 billion in 2012, up from a stock of $69.9 billion in 1993 (see
Table A-4). U.S. investment represents nearly 51.5% of the total stock of FDI in Canada from
global investors. U.S. FDI flows into Canada averaged $3.28 billion in the five years prior to the
FTA, and actually fell to an average of $1.7 billion in the first six years of the FTA, mainly
attributed to divestments of U.S.-owned branch plants in Canada. However, U.S. flows into
Canada increased markedly to an average of $14.9 billion during the years 1995 to 2012.79 The
stock of U.S. FDI is now equivalent to 18% of the value of Canadian GDP, in contrast to 1% at
the beginning of the FTA.
While Canada is not the largest investor in the United States, the United States was the largest
destination for Canadian FDI in 2012 with a stock of $225.3 billion, an increase from $26.6
billion in 1988.80 Approximately 40.7% of Canadian FDI was invested in the United States in
2012. Canadian FDI flows into the United States annually averaged $2.3 billion in five years
prior to the FTA, and an annual average of $1.8 billion during the FTA years, but increased to an
annual average of $9.9 billion from 1995 to 2012.81 These trends highlight the changing view of
FDI among Canadians, from one that could be considered fearful or hostile to FDI as vehicles of
foreign control over the Canadian economy, to one that is more welcoming of new jobs and
techniques that result from FDI.
Issues for Congress
Many economists and business representatives generally look at NAFTA as a success and credit it
for fueling unprecedented North American trade and creating job growth in the United States.
They look to build on NAFTA’s momentum to improve trade relations and economic integration
within the region. However, labor groups and some consumer-advocacy groups argue that the
agreement has had negative effects. They maintain that the agreement resulted in outsourcing and
77 Kevin Lynch, “Canada’s Challenge—From Good to Great,” Inside Policy, October 2012.
78 Glen Hodgson, “Canada U.S. Competitiveness, Addressing the Canadian Economic Contradiction,” Woodrow
Wilson Center, Canada Institute, June 2007; Lynch, ibid.
79 Investment statistics are from the U.S. Department of Commerce, Bureau of Economic Analysis, and Statistics
Canada.
80 Ibid.
81 Douglas Porter, “Free Trade at 25: How the FTA Positioned Canada for the 21st Century,” Inside Policy, October
2012.
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lower wages that have had a negative effect on the U.S. economy and that it has caused job
dislocations in Mexico, especially in agriculture.82
Given the increasing number of regional trade agreements throughout the world and the ongoing
Trans-Pacific Partnership (TPP) free trade negotiations, one general question that policy makers
may consider in forming future trade policy is whether or not NAFTA has lost its relevance. The
numerous FTAs that the United States, Mexico, and Canada have put into effect have given other
countries the same preferences to the U.S. market that Canada and Mexico benefit from under
NAFTA. Similarly, these FTAs have lessened the preferences the United States has in other
markets.
Both proponents and critics of NAFTA agree that the three countries should look at what the
agreement has failed to do as they look to the future of North American trade and economic
relations. Policies could include strengthening institutions to protect the environment and worker
rights; considering the establishment of a border infrastructure plan; increasing regulatory
cooperation; promoting research and development to enhance the global competiveness of North
American industries; investing in more border infrastructure to make border crossings more
efficient; and/or creating more efforts to lessen income differentials within the region.
Trans-Pacific Partnership (TPP)
In December 2012, Canada and Mexico began participating in the ongoing negotiations for a
proposed TPP free trade agreement (FTA) among 12 countries in the Asia-Pacific region.83 The
United States is an active participant in the negotiations and was among the first tranche of
countries to join the original four members of the Trans-Pacific Strategic Economic Partnership
(Brunei, Chile, New Zealand, and Singapore) to launch the TPP negotiations in the fall of 2008.
With 26 negotiating groups and 29 chapters under discussion, the TPP partners envision the
agreement to be “comprehensive and high-standard,” in that they seek to eliminate tariffs and
non-tariff barriers to trade in goods, services, and agriculture, and to establish rules on a wide
range of issues, including intellectual property rights, foreign direct investment and other
economic activities. They also strive to create a “21st century agreement” that addresses new and
cross-cutting issues presented by an increasingly globalized economy.
The United States has indicated that it is only negotiating bilateral market access in the TPP talks
with countries with which it does not have FTAs—Brunei, Japan, Malaysia, New Zealand, and
Vietnam. The addition of Japan to the negotiations in the summer of 2013 may afford all three
NAFTA countries with the possibility of additional market opening opportunities. However, the
United States has sought to go beyond current U.S. FTAs in its proposed rules chapters. This has
become a point of contention in the talks and may become an issue for Canada and Mexico as
well. The TPP may have implications for NAFTA in several areas, including intellectual property
rights (IPR), investment, services, government procurement, as well as labor and environmental
provisions. The related provisions in more recent free trade agreements that the United States has
82 Julián Aguilar, “Twenty Years Later, NAFTA Remains a Source of Tension,” The New York Times, December 7,
2012.
83 The 12 countries involved in the Trans-Pacific Partnership (TPP) negotiations include the United States, Australia,
Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam. For more information
on the TPP, see CRS Report R42694, The Trans-Pacific Partnership (TPP) Negotiations and Issues for Congress,
coordinated by Ian F. Fergusson.
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negotiated, such as those with Colombia, Panama, Peru, and South Korea, include commitments
that go beyond NAFTA. If agreement is reached on a TPP, Canada and Mexico may have to
adhere to stronger and more enforceable labor and environmental provisions, stronger IPR
provisions, as well as some issues that were not addressed in detail in the NAFTA, such as
disciplines on state-owned enterprises.
Regulatory Cooperation
Policy makers may consider issues on how the United States can improve cooperation with its
North American neighbors in the areas of trade, transportation, competitiveness, economic
growth, and security enhancement. The United States, Canada, and Mexico have made efforts
since 2005 to increase cooperation on these issues through various endeavors, most notably by
participating in trilateral summits known as the North American Leaders Summits. The most
recent Summit took place on February 19, 2014, in Toluca, Mexico. President Barack Obama met
with Mexican President Enrique Peña Nieto and Canadian Prime Minister Stephen Harper to
discuss the economic well-being of the region; education initiatives; energy and climate change;
citizen security; and regional, global, and stakeholder outreach.84
After the first North American Leaders’ Summit on March 23, 2005 in Waco, TX, the three
countries agreed on enhancing regulatory cooperation through the former initiative known as the
Security and Prosperity Partnership of North America (SPP). The main goal was to increase and
enhance prosperity in the United States, Canada, and Mexico through regulatory cooperation.85
The Obama Administration has affirmed its commitment to continue past efforts on North
American cooperation but under a different approach from the SPP initiative. While these efforts
have served as mechanisms to increase communications on issues of mutual interest, their role
has been limited because there are no binding agreements.
The former SPP initiative evolved to other efforts pursued by the Obama Administration for
regulatory cooperation, which have included separate bilateral endeavors. For example, in May
2010, the United States and Mexico released the Declaration Concerning Twenty-first Century
Border Management and, in December 2011, the United States and Canada announced the
Beyond the Border Action Plan: A Shared Vision for Perimeter Security and Economic
Competiveness. In February 2012, the United States and Mexico announced the High-Level
Regulatory Cooperation Council (HLRCC) to help align regulatory principles, an effort similar to
the U.S.-Canada Regulatory Cooperation Council. In March 2012, the Defense Ministers of the
three countries met in Ottawa, Canada, for the first ever “Trilateral Meetings of North American
Defense Ministers” to increase cooperation on national security issues.
Some critics of North American trilateral cooperation contend that the efforts are an attempt to
create a common market or economic union in North America. Others contend that past efforts
under the SPP were contributing to the creation of a so-called “NAFTA Superhighway” that
would link the United States, Canada, and Mexico with a “super-corridor.”86 Proponents of North
84 The White House, Office of the Press Secretary, Fact Sheet: Key Deliverables for the 2014 North American Leaders
Summit, February 19, 2014.
85 The SPP was endorsed by all three countries, but it was not a signed agreement or treaty and contained no legally
binding commitments or obligations. Although the SPP built upon the existing trade and economic relationship of the
three countries, it was distinct and separate from NAFTA.
86 See for example, Society for American Sovereignty, at http://www.americansov.org.
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American competitiveness and security cooperation view the initiatives as constructive to
addressing issues of mutual interest and benefit for all three countries. Business groups generally
support increased North American cooperation and believe that it is necessary to enhance the
competitiveness of U.S. businesses in the global market.
Proposals for Deeper Regional Integration
The rising number of regional trade agreements throughout the world, in addition to the rising
presence of China in Latin America, could have implications for U.S. trade policy with its
NAFTA partners beyond the proposed TPP. Some trade policy experts contend that a deepening
of economic relations with Canada and Mexico will help promote a common trade agenda with
shared values. In addition to economic effects, forming deeper trade and investment ties would
have positive implications for corporate governance, labor rights, environmental protection, and
democratic governance.87
Some policy experts emphasize the importance of North American trade in intermediate goods
and supply chains. They argue that the governments of the three countries should improve
cooperation in this area and invest more in improving border infrastructure. The increased
security measures that began after September 11, 2001 have resulted in a disruption in production
chains due to extended and unpredictable wait times along the border. This has disproportionately
hurt small and medium sized businesses.88 The United States and Mexico have recognized the
need to enhance cooperation on prioritizing the economic relationship and security and have
developed the Twenty-First Century Border Initiative for this purpose.89 While the initiative has
resulted in improvements along the border, some observers contend that policy makers could
devote more energy to improving cooperation and enhancing efficiency in cross-border trade.
Other experts have proposed ideas to address ongoing problems in the region and make North
American industries more competitive. Some proposals that have emerged include calls for
rethinking the current trade relationship under NAFTA by broadening the scope of North
American integration and cooperation. One idea, for example, is to develop a North American
Investment Fund to help close the income gap between Mexico and its northern neighbors. The
proposed fund would be administered by the World Bank and used to fund infrastructure projects
to connect the south of Mexico to the United States and Canada, and also to improve post-
secondary education in Mexico.90 Other ideas are to set up a Customs Union in North America,
such as that of the European Union, with a common external tariff to facilitate trade and deepen
North American integration; develop a cooperative approach on immigration; and promote
regulatory convergence.91 The proponents of these ideas admit that it would be very difficult for
Congress to approve these proposals in the near future, but argue that it is important to think
87 Testimony of Eric Farnsworth, Vice President, Council of the Americas, in U.S. Congress, Senate Committee on
Foreign Relations, Doing Business in Latin America: Positive Trends but Serious Challenges, 112th Cong., 2nd sess.,
July 31, 2012, S.Hrg. 112-607 (Washington, DC: GPO, 2012), pp. 30-32.
88 Christopher E. Wilson, Working Together: Economic Ties Between the United States and Mexico, Woodrow Wilson
International Center for Scholars, November 2011, pp. 37-38.
89 For more information, see CRS Report R41349, U.S.-Mexican Security Cooperation: The Mérida Initiative and
Beyond, by Clare Ribando Seelke and Kristin Finklea.
90 Robert A. Pastor, The North American Idea: A Vision of a Continental Future, Oxford University Press, 2011, pp.
169-172.
91 Ibid., pp. 167-200.
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about such options based on the increasing interdependence among NAFTA partners and common
interests concerning the future of the region.
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Appendix A. U.S. Merchandise Trade with
NAFTA Partners
Table A-1. U.S. Merchandise Trade with NAFTA Partners
(billions of nominal U.S. dollars)
Canada
Mexico
Total NAFTA
Trade
Trade
Trade
Year Exports Imports Balance Exports Imports Balance Exports Imports Balance
1993 100.2 110.9 -10.7 41.6 39.9 1.7 141.8 150.8 -9.0
1994 114.3 128.9 -14.6 50.8 49.5 1.3
165.1 178.4 -13.3
1995 126.0 145.1 -19.1 46.3 61.7 -15.4
172.3 206.8 -34.5
1996 132.6 156.5 -23.9 56.8 73.0 -16.2 189.4 229.5 -40.1
1997 150.1 168.1 -18 71.4 85.9 -14.5
221.5 254.0 -32.5
1998 154.2 174.8 -20.6 79.0 94.7 -15.7
233.2 269.5 -36.3
1999 163.9 198.3 -34.4 87.0 109.7 -22.7 250.9 308.0 -57.1
2000 176.4 229.2 -52.8 111.7 135.9 -24.2 288.1 365.1 -77.0
2001 163.7 217.0 -53.3 101.5 131.4 -29.9 265.2 348.4 -83.2
2002 160.8 210.6 -49.8 97.5 134.7 -37.2 258.3 345.3 -87.0
2003 169.5 224.2 -54.7 97.5 138.1 -40.6 267.0 362.3 -95.3
2004 187.7 255.9 -68.2 110.8 155.8 -45 298.5 411.7 -113.2
2005 211.4 287.9 -76.5 120.0 170.2 -50.2 331.4 458.1 -126.7
2006 230.3 303.4 -73.1 134.2 198.3 -64.1 364.5 501.7 -137.2
2007 248.4 313.1 -64.7 136.5 210.8 -74.3 384.9 523.9 -139.0
2008 260.9 335.6 -74.7 151.5 215.9 -64.4 412.4 551.5 -139.1
2009 204.7 224.9 -20.2 129.0 176.5 -47.5 333.7 401.4 -67.7
2010 248.2 276.5 -28.3 164.3 229.7 -65.4 412.5 506.2 -93.7
2011 280.8 316.5 -35.7 197.5 263.1 -65.6 478.3 579.6 -101.3
2012 291.8 324.2 -32.4 216.3 277.7 -61.4 508.1 601.9 -93.8
2013 300.2 332.1 -31.9 226.2 280.5 -54.3 526.4 612.5 -86.1
Source: Compiled by CRS using trade data from the U.S. International Trade Commission’s Interactive Tariff
and Trade Data Web, at http://dataweb.usitc.gov.
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Table A-2. U.S. Private Services Trade with NAFTA Partners
(billions of nominal U.S. dollars)
Canada
Mexico
Total NAFTA
Services
Services
Services
Trade
Trade
Trade
Year Exports Imports Balance Exports Imports Balance Exports Imports Balance
1993 17.0 9.1 7.9
10.4 7.4 3.0
27.4 16.5 10.9
1994 17.2 9.9 7.3
11.3 7.9 3.4
28.5 17.8 10.7
1995 17.9
11.0 6.9 8.7 7.9 0.8
26.6
18.9 7.7
1996 19.5
12.4 7.1 9.4 8.9 0.5
28.9
21.3 7.6
1997 20.5
13.7 6.8
10.8 9.9 0.9
31.3
23.6 7.7
1998 19.4
15.0 4.4
11.7 9.8 1.9
31.1
24.8 6.3
1999 22.7
16.2 6.5
14.1 9.4 4.7
36.8
25.6 11.2
2000 24.6 17.9 6.7 15.5 10.8 4.7 40.1 28.7 11.4
2001 24.4 17.4 7.0 16.4 10.4 6.0 40.8 27.8 13.0
2002 25.0 18.0 7.0 17.4 11.6 5.8 42.4 29.6 12.8
2003 27.3 19.6 7.7 18.2 12.1 6.1 45.5 31.7 13.8
2004 29.5 20.7 8.8 19.2 13.6 5.6 48.7 34.3 14.4
2005 32.6 22.0 10.6 22.4 14.2 8.2 55.0 36.2 18.8
2006 37.6 23.2 14.4 23.7 14.6 9.1 61.3 37.8 23.5
2007 42.5 25.0 17.5 24.9 15.2 9.7 67.4 40.2 27.2
2008 44.9 25.1 19.8 25.9 15.5 10.4 70.8 40.6 30.2
2009 43.1 22.9 20.2 22.6 13.6 9.0 65.7 36.5 29.2
2010 52.5 26.5 26.0 24.4 13.6 10.8 76.9 40.1 36.8
2011 58.4 28.4 30.0 25.6 13.9 11.7 84.0 42.3 41.7
2012 61.2 29.8 31.4 27.4 15.1 12.3 88.6 44.9 43.7
Source: Compiled by CRS using data from the Bureau of Economic Analysis online database at
http://www.bea.gov.
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Table A-3. U.S. Trade with NAFTA Partners by Major Product Category: 2013
(billions of nominal U.S. dollars)
U.S. Exports
U.S. Imports
NAFTA
Leading Items
Leading Items
Partner
(NAIC 4-digit level)
Value
(NAIC 4-digit level)
Value
Canada
Motor vehicle parts
26.5
Oil and gas
87.6
Motor vehicles
26.2
Motor vehicles
44.5
Petroleum and coal products
14.9
Petroleum and coal products
18.7
Agriculture and construction
11.9
Motor vehicle parts
13.5
machinery
Other general purpose machinery
9.5
Nonferrous metal and processing
10.8
Al Other
211.2
Al Other
157.0
Total exports to Canada
300.2
Total imports from Canada
332.1
Mexico
Motor vehicle parts
21.1
Motor vehicles
40.1
Petroleum and coal products
19.3
Motor vehicle parts
36.2
Computer equipment
14.8
Oil and gas
32.0
Semiconductors and other
13.0 Computer
equipment
14.8
electronic components
Basic chemicals
10.1
Audio and video equipment
13.8
Al other
147.9
Al other
143.6
Total Exports to Mexico
226.2
Total Imports from Mexico
280.5
Source: Compiled by CRS using trade data from the U.S. International Trade Commission’s Interactive Tariff
and Trade Data Web, at http://dataweb.usitc.gov.
Notes: The North American Industrial Classification System (NAICS) is the standard used by federal statistical
agencies in classifying business establishments for the purpose of collecting, analyzing, and publishing statistical
data related to the U.S. business economy.
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Table A-4. U.S. Foreign Direct Investment Positions with Canada and Mexico
(1993-2012 historical cost basis [mil ions of U.S. dol ars])
Canadian FDI
U.S. FDI in
Mexican FDI
U.S. FDI in
Year
in the U.S.
Canada
in the U.S.
Mexico
1993 40,373
69,922 1,244
15,221
1994
41,219 74,221 2,069 16,968
1995 45,618
83,498 1,850
16,873
1996 54,836
89,592 1,641
19,351
1997
65,175 96,626 3,100 24,050
1998 72,696
98,200 2,055
26,657
1999 90,559
119,590 1,999
37,151
2000
114,309 132,472 7,462 39,352
2001 92,420
152,601 6,645
52,544
2002 92,529
166,473 7,829
56,303
2003
95,707 187,953 9,022 56,851
2004 125,276
214,931 7,592 63,384
2005 165,667
231,836 3,595 73,687
2006 165,281
205,134 5,310 82,965
2007
201,924 250,642 8,478 91,046
2008 168,746
246,483 8,420 87,443
2009 188,943 265,326 11,111 82,286
2010
188,943 289,535 11,267 84,288
2011 210,864 318,964 13,763 91,402
2012 225,331
351,460 14,883
101,030
Source: Compiled by CRS using data from the Bureau of Economic Analysis online database at
http://www.bea.gov.
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Appendix B. Mexico’s Protectionist Trade Policies
Prior to NAFTA
Summary of Mexico’s Protectionist Policies Prior to NAFTA
For decades prior to NAFTA Mexico relied on import substitution policies, restrictions on foreign investment, and a
controlled exchange rate to help foster domestic growth and to protect itself from a perceived risk of foreign
domination.
State-Owned Enterprises (SOEs). Mexico had a strong state presence prior to NAFTA. During the late 1950s
and 1960s, the number of state-owned enterprises in Mexico almost doubled from 144 to 272. By 1982, the number
of SOES had increased to 1,155. Mexico’s economic reforms and divestiture of the state owned sector that occurred
during the period of 1983 to 1993 decreased the number of SOEs to 258. By the end of 2003, the number of SOEs
dropped to 210.
Import Licenses. Mexico had import license requirements on most, if not all, Mexican imports. The government
began to phase these out in the mid-1980s. By the time NAFTA negotiations started, import licenses were required
on only 230 products of the nearly 12,000 items in the Mexican tariff schedule. In agricultural goods, 60% of U.S.
exports to Mexico required import licenses or faced other nontariff barriers. There was also a lack of transparency of
procedures through which exporters to Mexico could apply for the proper license, certificate, or test.
Foreign Investment Restrictions. Mexico’s restrictive Law to Promote Mexican Investment and Regulate Foreign
Investment was in effect at the time of NAFTA negotiations, though Mexico had started liberalizing some restrictions
in the mid-1980s. In 1991, 37% of Mexican economic activity was not open to 100% foreign investment ownership.
Auto Industry Import Substitution Policy (Auto Decrees). Mexico had a restrictive import substitution policy
that began in the 1960s through a series of Mexican Auto Decrees in which the government sought to supply the
entire Mexican market through domestical y-produced automotive goods. The decrees established import tariffs as
high as 25% on automotive goods and had high restrictions on foreign auto production in Mexico. The decrees
prohibited imports of finished vehicles; imposed high domestic-content requirements on foreign manufacturers
producing cars in Mexico; issued export requirements in which a certain amount of exports was required for every
dollar of imports. The government issued the final decree in 1989, after joining the GATT, liberalizing rules on the
industry but not entirely eliminating them. Auto manufacturers were still required to have a certain percentage of
domestic content in their products and meet export requirements, both of which were considered huge impediments
to the industry. Even after joining the GATT, Mexico had tariffs of 20% or more on imports of automobiles and auto
parts.
Restrictions in Agriculture. In the period after the 1910 revolution and until the 1980s, Mexico had a land
distribution system in which land was redistributed from wealthy land owners and managed by the government. This
ejido system, formed under Mexico’s Agrarian Law, changed in the 1980s when the government began to implement
agricultural and trade policy reform measures. Changes included the privatization of the ejido system in order to
stimulate competition. Mexico’s unilateral reform measures included eliminating state enterprises related to
agriculture and removing staple price supports and subsidies. Mexico also had a government agency known as
CONASUPO which intervened in the agriculture sector. The agency bought staples from farmers at guaranteed
prices and processed the products or sold them at low prices to processors and consumers. Many of Mexico’s
domestic reforms in agriculture coincided with NAFTA negotiations, beginning in 1991, and continued beyond the
implementation of NAFTA in 1994. The unilateral reforms in the agricultural sector make it difficult to separate those
effects from the effects of NAFTA. By 1999, CONASUPO had been abolished.
Sources: United States International Trade Commission (USITC), The Likely Impact on the United States of a Free
Trade Agreement with Mexico, Publication 2353, February 1991.Gary Clyde Hufbauer and Jeffrey J. Schott, Institute for
International Economics, NAFTA Revisited, October 2005. Alberto Chong and Florencio López-de-Silanes, Privatization
in Mexico, Inter-American Development Bank, Working Paper #513, August 2004.
Congressional Research Service
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NAFTA at 20: Overview and Trade Effects
Author Contact Information
M. Angeles Villarreal
Ian F. Fergusson
Specialist in International Trade and Finance
Specialist in International Trade and Finance
avillarreal@crs.loc.gov, 7-0321
ifergusson@crs.loc.gov, 7-4997
Congressional Research Service
32